Cannibalization? Don't Bet On It

During the past few years it has been common to read predictions that e-commerce will cannibalize the sales of traditional paper catalogs. It is easy to see why these forecasters use such dramatic wording.

The competition for eyeballs is tough. Since public relations is the major advertising tool for those who prognosticate trends, those in the field must strive to have their press releases read and not discarded.

In Public Relations 101, they teach that to get attention there must be a "grabber" in sentences one or two of the first paragraph. It must include something dramatic to get the reader's attention and have him follow with a call to see whether there is a story. This has led marketing researchers, whom you would think want to maintain an image of impartiality, to make dramatic statements so they can capture their share of the eyeballs.

One of the favorite dramatic statements is that a segment of business will be "cannibalized" by e-commerce. In most cases, reports predicted that consumer catalogers would be the industry cannibalized. This presupposes that consumer spending is finite, and if money is spent in one channel, another channel will lose out. While this is logical, the choice of the "losing" channel is rather arbitrary.

A recent example was research by Jupiter Communications, New York, on e-mail marketing. It predicts that by 2003 e-mail marketing will generate $7.3 billion in revenue. Furthermore, it said this will have a 13 percent negative effect on direct marketers based on the Direct Marketing Association's estimates of direct marketing sales.

Assuming this is true, all the 2003 e-mail revenues will come from direct marketers. Why no bricks-and-mortar retailers or even dot-coms would lose sales was not explained. Moreover, there was no indication that some of this "loss" would be just a shift in channels for catalogers; they would still get their normal portion of total sales, which would include e-commerce in addition to their paper catalogs.

However, the constant depiction of traditional catalogers as losers in e-commerce is irritating and harmful to this industry. It puts catalogers in the dying-breed category. Yet, when forecasters are asked which traditional channel is most adaptable or likely to succeed in e-commerce, the answer is cataloging. Moreover, their public pronouncements always come out sounding the opposite.

Maybe the Internet will cannibalize catalogers and direct marketers. It depends on which definition of cannibalization you use. There are several definitions in the dictionary, but two apply to this usage.

The first is "... to affect [as an existing product] adversely by cannibalizing sales." This certainly is the most common usage of the term, regardless of the context of the story.

The prevailing philosophy is that there is a winner and a loser, whether in sports, economics or even nations. It is logical that a definition that declares a winner or loser will be the interpretation of most readers.

The second, and less widely used, definition of cannibalization is "... to take [sales] away from an existing product by selling or being sold as a similar but new product usually from the same manufacturer." This is what is happening to catalogers. They are not losing sales. Instead, they are coming from the new channel.

This has been the experience of many catalogers this year. E-commerce sales are running from 5 percent to 10 percent of sales, and while up to 90 percent of their e-commerce customers can be traced to recipients of their paper catalogs, anywhere from 10 percent to 25 percent are new customers.

This is not surprising. Remote shopping is not something all consumers like to take part in. Most research indicates only about 60 percent of the adult population shops from catalogs annually. So if a consumer is comfortable with remote shopping, it is logical that he would be willing to shop all of a company's channels.

The last reason catalogers won't be losers in e-commerce is the very definition of the "e-commerce shopper." The early adopters to e-commerce were men, who traditionally have been poor catalog shoppers. More than 60 percent of catalog shopping is done by women, who also buy more frequently than men. So if men are or were the primary shoppers on the Web, why was cataloging supposed to lose share? If men are the primary buyers, it stands to reason the losers would be bricks-and-mortar retailers, not catalogers. Why the forecasters missed this obvious point is puzzling.

Even projecting forward, women are not forecast to be 60 percent of e-commerce shoppers for some time, and again that is in numbers of shoppers, not dollars spent.

With all that said, will cannibalization of catalog sales occur? The answer is yes. However, the cannibalization will be the second definition, where a cataloger will see its sales coming from multiple channels rather than one. If anything, it is more likely that the acceptance of remote shopping due to the clamor about e-commerce will increase all forms of remote shopping at the expense of bricks-and-mortar retailers, not direct marketers.